The relationship between working capital and customer service

BIE’s Supply Chain Risk Survey 2018 explored the most important areas of focus for organisations to optimise the relationship between working capital and customer service levels. The top three areas were revealed to be S&OP/IBP, demand management and order to cash cycle.

What we’re clearly seeing is there are supply chains recognising the value of sales and operations planning, effective demand management, and optimising the order to cash cycle.

Demand management is focused on accurately forecasting what customers are going to want, based primarily on historic data and sales force information. These are the things you would expect to be the key drivers to optimising the working capital to customer satisfaction ratio.

Prioritising evolving technologies

What is missing from these results is a greater push on artificial intelligence and cloud computing. The real industry innovators are those that prioritise these rapidly evolving technologies. These organisations recognise that the process landscape that they need to be engaging with for the future is going to change quite radically and fundamentally. Many businesses, both SMEs and multinationals alike, struggle with the legacy of poor data integrity which is seen as ‘too difficult’ a problem to resolve.

This is likely the inhibitor of automation of process and tasks: where an output cannot be trusted because of the fundamental inaccuracies of data used to inform the automation. This causes the reinforcing cycle whereby supply chain organisations become bogged-down in managing exceptions and data issues, failing to fully address the root cause of failures. And this in turn limits the capacity to vertically integrate processes to fully leverage the relationship between working capital and customer service.

Near-Zero inventory holding positions with >99% customer service can never be achieved without automation of repeatable and predictable events: automation requires trust in data and process. They need to get out of their legacy situation to a position where they are then able to automate.

A move towards full integration?

To effectively drive improvements in customer service, businesses need to tackle the data nightmare and to fully understand what their order to cash cycles look like. Having clear visibility of what inventory you have throughout your end-to-end value chain and being able to effectively communicate that back to your customers will help create a cycle of incremental improvements that are capable of self-perpetuating.

This combined with an all-round willingness to vertically integrate with customers as well as suppliers will be the game changer. Imagine the power of Point-of-Sale data from Tesco being visible (and in a meaningful way) to a supplier of haricot beans to Heinz!

Full transparency and a network of trusted partners will be critical yet a move towards that level of full integration is something we are going to see more of over the next five years. We just need to take a look at the data first though…